1972 (9) TMI 25 - HC - Income Tax

Whether the discretion of the commissioner as per provision to section 66(7) of Indian Income-tax Act, 1922 privilege to the rate of interest or to the date from which interest or to the date from which interest is payable - interest payable under section 66(7) should from the date of the original order of the Tribunal or the date of the payment of tax if the payment of tax was subsequent to the order of the Tribunal - hold that the petitioners in this case are entitled to interest at 3% on Rs. 2,04,160.31 from the date of the original order of the Tribunal and not from the date of its consequential order passed on May 30, 1961 - The writ petition is therefore, partly allowed and the rule nisi is made absoulte.

Summary

Issues Involved:
1. Assessability of profit under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.
2. Entitlement to interest on the refund of overpaid tax.
3. Date from which interest on the refund is payable.

Detailed Analysis:

1. Assessability of Profit under Second Proviso to Section 10(2)(vii):
The petitioners were assessed to income-tax for the assessment year 1956-57, including a sum of Rs. 5,36,034 as profit from the sale of building, plant, and machinery under the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. The petitioners contended that no part of the profit should be assessed under this proviso, or at most only Rs. 3,23,461 should be assessable. This contention was rejected by the Appellate Assistant Commissioner and the Tribunal. However, upon reference, the High Court ruled in favor of the petitioners, determining that the profit from the sale should not be assessed under the second proviso to section 10(2)(vii).

2. Entitlement to Interest on the Refund of Overpaid Tax:
Following the High Court's decision, the Tribunal passed an order declaring the total income assessable for the assessment year 1956-57 as "nil" and directed the refund of the tax paid. The petitioners sought interest on the refunded amount of Rs. 2,04,160.31 at 6% per annum, as stipulated by the Supreme Court in a stay order during the pendency of the appeal. The Commissioner of Income-tax sanctioned interest at 3% per annum from May 30, 1961, to July 19, 1962, and at 6% per annum from July 20, 1962, to March 3, 1965. The petitioners argued that interest should be allowed from the dates of payment of the tax.

3. Date from Which Interest on the Refund is Payable:
The petitioners contended that interest should be payable from the dates of overpayment, while the revenue argued that the Commissioner has discretion to fix the date from which interest is payable, and it should be from the date of the Tribunal's follow-up order under section 66(5). The Court examined section 66(7) and its proviso, noting that it does not specify the date from which interest is payable. The Court rejected the revenue's contention that the Commissioner has discretion to fix the date, as it would lead to arbitrary decisions. The Court concluded that interest should be payable from the date of the original order of the Tribunal or the date of payment of the tax if the payment was subsequent to the Tribunal's order.

Conclusion:
The Court held that the petitioners are entitled to interest at 3% on Rs. 2,04,160.31 from the date of the original order of the Tribunal until May 29, 1961. The writ petition was partly allowed, and the respondent was directed to pay interest accordingly. There was no order as to costs.